Bank of Montreal has declared its intention to build its U.S. retail banking operations through midsize acquisitions, but the deal it and its Chicago subsidiary announced Thursday shows that smaller targets will not be ignored.
Under the deal, Harris Bankcorp Inc. is buying the $288 million-asset Edville Bankcorp Inc. of Villa Park, Ill., for $65.5 million.
The move is in line with Harris' strategy to expand with a focus on the Chicago area. The $17 billion-asset company did three acquisitions last year, spending $228.5 million in the largest, for New Lenox Holding Co. (the Edville deal is expected to close in the fall).
"There is a continuum from very small transactions to much larger transactions," said William Downe, a deputy chairman of Bank of Montreal who leads its U.S. operations. "We are looking across the whole spectrum and hopeful that we find opportunities of all sizes."
Edville's two branches "fit in perfectly" with Harris' network, Mr. Downe said by phone from Chicago. And under Harris, he said, Edville could add more commercial customers to its mostly consumer customer base.
Harris has 171 branches in the Chicago area and wants to get that number to 200.
In January, Bank of Montreal's chief financial officer, Karen Maidment, told American Banker that the company was weighing larger deals than Harris had done to that point, potentially taking it to markets reaching from "west of the Mississippi to east of the Rockies."
Some analysts called the Edville deal a good one for Harris.
"This may not be the deal they have been talking about," but "I am happy that they didn't go out and do a risky billion-dollar deal," said Tom Kersting of Edward Jones in St. Louis.
Mr. Kersting called the $65.5 million price, 2.8 times Edville's book value and 18 times its trailing 12-month earnings, reasonable. Many bankers have said that price expectations among willing sellers are high, and the Chicago market is among the most competitive.
But Brenda Lum, an analyst with Dominion Bond Rating Service in Toronto, said Harris might have become an acquirer of choice. "They do have the skills; they would be included in any deal," she said.
Mr. Downe said a number of factors made the Edville deal happen, including the cultural fit and the fate of Edville's staff (a Harris spokeswoman said that most of the seller's roughly 75 employees will stay on). Those issues are "the foundation for a very productive conversation and it doesn't put price right at the front," Mr. Downe said.
Mr. Kersting said that the stiff competition in Chicago and the difficult overall operating environment might give some executives at smaller Chicago banking companies more incentive to sell now rather than later. "I suspect that was driving it," he said.
On March 31, Edville's Villa Park Trust and Savings Bank subsidiary, had deposits of $263 million, 92.7% of which were core deposits, according to the Federal Deposit Insurance Corp. Its $232.1 million loan book consisted 85.1% of residential mortgages.
"The asset quality looks decent," judging from the FDIC data, Mr. Kersting said.
Low-risk deals like the one for Edville "are worthwhile" for Harris because Harris knows the market, Ms. Lum said.
Mr. Downe said there are still acquisition targets in the Chicago area. Chicago and the Midwest in general are "a relatively fertile market," he said.
